UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q









[X]
            QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
              
              For the quarterly period
      ended March 31, 2008OR[   ]
            TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For the
      transition period from ____________
  to_____________




Commission
file number 333 - 38558




KODIAK
ENERGY, INC.


(Exact
name of registrant as specified in its charter)







Delaware
            
            65-0967706(State or other jurisdiction of
              incorporation or organization)
            
            (I.R.S.
      Employer
              Identification No.)






734 7th
      Avenue S.W. Calgary, AB T2P 3P8(Address of principal executive offices - Zip
      code)(403)
      262-8044(Registrant's telephone number, including area
      code)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject
to such filing requirements for the past 90 days. Yes  X   No
___





Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated Filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
“large Accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):




Large
      Accelerated Filer
            o
            Accelerated Filer
            xNon-Accelerated Filer (Do not check if a smaller reporting
      company)
            o
            Smaller
      Reporting Company
            o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of The
Exchange Act) Yes  X   No ___





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:





Check
whether the registrant filed all documents and reports required to be filed by
Sections 12, 13 or
15(d) of the Exchange Act of 1934 subsequent to the distribution of securities
under a plan
confirmed by a court. Yes  X   No
___




APPLICABLE
ONLY TO CORPORATE ISSUERS





State the
number of shares outstanding of each of the registrant's classes of common
equity, as of the
latest practicable date: 106,692,498 common shares, $.001 par value, as at May
9, 2008.





Transitional
Small Business Disclosure Format (Check one): Yes     No _X_











KODIAK
ENERGY, INC.


INDEX





PART
      I.
              FINANCIAL INFORMATION
              3ITEM
      1.
              FINANCIAL STATEMENTS
              3Consolidated Balance Sheets
              3Consolidated Statement of Shareholders’ Equity
      (unaudited)
              4Consolidated Statements of Operations
      (unaudited)
              5Consolidated Statements of Cash Flows
      (unaudited)
              6Notes
      to Consolidated Financial Statements (unaudited)
              7ITEM 2.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION
              19ITEM 3.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              24ITEM 4.
              CONTROLS AND PROCEDURES
              24PART
      II.
              OTHER
      INFORMATION
              25ITEM
      1.
              LEGAL
      PROCEEDINGS
              25ITEM 1A.
              RISK
      FACTORS
              25ITEM
      2.
              UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
              28ITEM
      3.
              DEFAULTS UPON SENIOR SECURITIES
              28ITEM
      4.
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
              28ITEM
      5.
              OTHER
      INFORMATION
              28ITEM 6.
              EXHIBITS AND REPORTS ON FORM 8-K
              29





PART I.
FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





KODIAK ENERGY, INC.


Consolidated
Balance Sheets


(Exploration
Stage Company Going Concern Uncertainty – Note 1)







March
      312008, (Unaudited)
            
            
            December 31,2007
              (Audited)AssetsCurrent
      Assets:Cash
      and Short Term Deposits
            
            $
            3,797,540
            
            
            $
            8,983,682Accounts Receivable (Note 4)
            
            
            380,179
            
            
            
            1,214,253Prepaid
      Expenses and Deposits
            
            
            82,058
            
            
            
            90,4754,259,777
            
            
            
            10,288,410Other
      Assets (Note 5)
            
            
            343,322
            
            
            
            359,353Capital
      Assets (Note 6):Unproved Oil & Gas Properties Excluded
    FromAmortization – Based on Full Cost Accounting
            
            
            31,755,309
            
            
            
            23,967,351Property & Equipment
            
            
            74,271
            
            
            
            75,65431,829,580
            
            
            
            24,043,005Total
      Assets
            
            $
            36,432,679
            
            
            $
            34,690,768Liabilities and Shareholders' EquityCurrent
      Liabilities:Accounts Payable
            
            
            1,435,683
            
            
            
            1,547,273Accrued
      Liabilities
            
            
            2,951,165
            
            
            
            755,2824,386,848
            
            
            
            2,302,555Long-term Liabilities (Note 7)
            
            
            46,587
            
            
            
            110,955Asset
      Retirement Obligations (Note 8)
            
            
            239,635
            
            
            
            151,814Deferred Income Taxes (Note 9)
            
            
            52,000
            
            
            
            57,0004,725,070
            
            
            
            2,622,324Shareholders' EquityShare
      Capital (Note 10):Authorized 300,000,000 Common Shares Par
      Value .001 Each; Issued andOutstanding
      106,692,498 Common Shares
            
            
            106,692
            
            
            
            106,692Additional Paid in Capital
            
            
            39,323,934
            
            
            
            39,143,392Other
      Comprehensive Loss
            
            
            (421,421
            )
            
            
            (342,201
            )Deficit
      Accumulated during the Exploration Stage
            
            
            (7,301,596
            )
            
            
            (6,839,439
            )31,707,609
            
            
            
            32,068,444Total
      Liabilities and Shareholders’ Equity
            
            $
            36,432,679
            
            
            
            34,690,768




(See accompanying notes to the consolidated financial
statements)




3





KODIAK
ENERGY, INC.


Unaudited
Consolidated Statements of Shareholders’ Equity


Three
Months Ended March 31, 2008


(Exploration
Stage Company Going Concern Uncertainty – Note 1)







Number
      ofCommon Shares
            
            Amount
            
            AdditionalPaid in Capital
            
            
            Deficit
      AccumulatedDuring theExploration Stage
            
            
            AccumulatedOtherComprehensive Loss
            
            
            SharesIssuable
            
            TotalShareholders’ EquityBalance
      at December 31, 2007
            
            106,692,498
            
            $
            106,692
            
            $
            39,143,392
            
            
            $
            (6,839,439
            )
            
            $
            (342,201
            )
            
            $
            -
            
            $
            32,068,444Net
      loss
            
            -
            
            
            -
            
            
            -
            
            
            
            (462,157
            )
            
            
            -
            
            
            
            -
            
            
            (462,157
            )Foreign
      currency translation
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            
            (79,220
            )
            
            
            
            
            
            (79,220
            )Comprehensive
      loss
            
            -
            
            
            -
            
            
            -
            
            
            
            (462,157
            )
            
            
            (79,220
            )
            
            
            
            
            
            (541,377
            )Share
      issue costs
            
            -
            
            
            -
            
            
            (9,594
            )
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            (9,594
            )Stock-based
      Compensation
            
            -
            
            
            -
            
            
            190,136
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            190,136Balance
      at March 31, 2008
            
            106,692,498
            
            $
            106,692
            
            $
            39,323,934
            
            
            $
            (7,301,596
            )
            
            $
            (421,421
            )
            
            
            
            
            $
            31,707,609




(See accompanying notes to the consolidated financial
statements)




4







Kodiak
Energy Inc.


Unaudited
Consolidated Statements of Operations


(Exploration
Stage Company Going Concern Uncertainty – Note 1)








Three
      Months Ended March 31, 2008
            
            
            Three
      Months Ended March 31, 2007
            
            
            CumulativeSince
      InceptionApril
      7, 2004to
      March31,
      2008REVENUE
      DURING THE EVALUATION PERIOD
            
            $
            -
            
            
            $
            385
            
            
            $
            27,359EXPENSESOperating
            
            
            274
            
            
            
            10,636
            
            
            
            34,389General
      and Administrative
            
            
            512,165
            
            
            
            294,502
            
            
            
            4,383,740Stock-based
      Investor Relations
            
            
            -
            
            
            
            -
            
            
            
            337,500Depletion,
      Depreciation and AccretionIncluding
      Ceiling Test ImpairmentWrite-downs
            
            
            11,704
            
            
            
            9,521
            
            
            
            1,738,801Interest
            
            
            -
            
            
            
            -
            
            
            
            902,894524,143
            
            
            
            314,669
            
            
            
            7,397,324Loss
      Before Other Expenses(Income)
            
            
            524,143
            
            
            
            314,284
            
            
            
            7,369,965Other
      Expenses (Income)Loss
      from valuation adjustment
            
            
            -
            
            
            
            -
            
            
            
            25,000Interest
      Income
            
            
            (56,986
            )
            
            
            (242
            )
            
            
            (145,369
            )(56,986
            )
            
            
            (242
            )
            
            
            (120,369
            )Net
      Loss before taxes
            
            
            467,157
            
            
            
            314,042
            
            
            
            7,249,596Deferred
      income taxes (recovery)
            
            
            (5,000
            )
            
            
            -
            
            
            
            52,000NET
      LOSS
            
            
            462,157
            
            
            
            314,042
            
            
            
            7,301,596





(See
accompanying notes to the consolidated financial statements)





5





KODIAK
ENERGY, INC.


Unaudited
Consolidated Statements of Cash Flows
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)


Three
      Months Ended March 31, 2008
              
              
              Three
      Months Ended March 31, 2007
              
              
              CumulativeSince
      InceptionApril
      7, 2004to
      March31,
      2008Operating
      Activities:Net
      Loss
              
              $
              (462,157
              )
              
              $
              (314,042
              )
              
              $
              (7,301,596
              )Adjustments
      to reconcile net loss to net
      cash used in operating activities:Depletion,
      Depreciation and Accretion
              
              
              11,704
              
              
              
              9,521
              
              
              
              1,738,801Deferred
      Income Taxes (Recovery)
              
              
              (5,000
              )
              
              
              -
              
              
              
              52,000Stock-Based
      Investor Relations Expense
              
              
              -
              
              
              
              -
              
              
              
              337,500Stock-Based
      Compensation
              
              
              190,136
              
              
              
              123,814
              
              
              
              903,239Non-cash
      Interest Expense
              
              
              -
              
              
              
              -
              
              
              
              808,811Bad
      debts written off
              
              
              -
              
              
              
              -
              
              
              
              11,908Contributions
      to Capital
              
              
              -
              
              
              
              -
              
              
              
              900Non-Cash
      Working Capital Changes (Note 17)
              
              
              603,464
              
              
              
              (110,188
              )
              
              
              74,140Net
      Cash Provided From Operating Activities
              
              
              338,147
              
              
              
              (290,895
              )
              
              
              (3,374,297
              )Investment
      Activities:Additions
      To Capital Assets (Note 17)
              
              
              (5,273,670
              )
              
              
              (1,668,110
              )
              
              
              (15,633,670
              )Decrease
      In Other Assets
              
              
              16,031
              
              
              
              (712
              )
              
              
              (343,322
              )Net
      Cash Used In Investment Activities)
              
              
              (5,257,639
              )
              
              
              (1,668,822
              )
              
              
              (15,976,992
              )Financing
      ActivitiesShares
      Issued and Issuable (Note 17)
              
              
              (123,062
              )
              
              
              1,734,928
              
              
              
              23,523,663Long
      term Liabilities
              
              
              (64,368
              )
              
              
              -
              
              
              
              46,587Net
      Cash Provided By Financing Activities
              
              
              (187,430
              )
              
              
              1,734,928
              
              
              
              23,570,250Foreign
      Currency Translation
              
              
              (79,220
              )
              
              
              (111
              )
              
              
              (421,421
              )Net
      Cash Increase (Decrease)
              
              
              (5,186,142
              )
              
              
              (224,900
              )
              
              
              3,797,540Cash
      beginning of period
              
              
              8,983,682
              
              
              
              448,346
              
              
              
              -Cash
      end of period
              
              $
              3,797,540
              
              
              $
              223,446
              
              
              $
              3,797,540Cash
      is comprised of:Balances
      with banks
              
              $
              1,842,014
              
              
              $
              223,446
              
              
              $
              1,842,014Short-term
      deposits
              
              $
              1,955,526
              
              
              $
              -
              
              
              $
              1,955,526$
              3,797,540
              
              
              $
              223,446
              
              
              $
              3,797,540





(See
accompanying notes to the consolidated financial statements)





6




KODIAK
ENERGY, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Three Months Ended March 31, 2008 and 2007


Stated in
US dollars





1.ORGANIZATION, BASIS OF
PRESENTATION AND GOING CONCERN UNCERTAINTY
 
 The
accompanying consolidated financial statements include the accounts of Kodiak
Energy Inc. and subsidiaries (collectively “Kodiak”, the “Company”, “we”, “us”
or “our”) as at March 31, 2008  and December 31, 2007 and for the
three months ended March 31, 2008 and 2007 and for the cumulative period from
April 7, 2004 (inception)until March 31, 2008, and are presented in accordance
with generally accepted accounting principles in the United States of America
(“U. S. GAAP”).
 
 The
Company was incorporated under the laws of the state of Delaware on December 15,
1999 under the name “Island Critical Care, Corp.” with authorized common stock
of 50,000,000 shares with a par value of $0.001. On December 30, 2004 the name
was changed to “Kodiak Energy, Inc.” and the authorized common stock was
increased to 100,000,000 shares with the same par value. On January 17, 2005 the
Company affected a reverse split of 100 outstanding shares for one share. These
consolidated financial statements have been prepared showing post split shares
from inception. The Company was engaged in the development of the manufacture
and distribution of medical instrumentation and it became inactive after the
bankruptcy outlined below. During 2006, the Company increased its authorized
capital to 300,000,000 common shares.
 
 The
Company is in the exploration stage and its efforts have been principally
devoted to the raising of capital, organizational infrastructure development and
the acquisition of oil and gas properties for the purpose of future extraction
of resources.
   
 Bankruptcy
 
 On
February 5, 2003 the Company filed a petition for bankruptcy in the District of
Prince Edward Island, Division No. 01-Prince Edward Island Court No. 1713,
Estate No. 51-104460, titled “Island Critical Care Corp.”. The Company emerged
from bankruptcy pursuant to a Bankruptcy Court Order entered on April 7, 2004
with no remaining assets or liabilities and adopted Fresh Start
Accounting.
 
 The terms
of the bankruptcy settlement included the authorization for the issuance of
150,000 post split restricted common shares in exchange for $25,000, which was
paid into the bankruptcy court by the recipient of the shares.
 
 The
Company emerged from bankruptcy as an exploration stage company.
 
 Going Concern
Uncertainty
 
 These
consolidated financial statements have been prepared assuming the Company will
continue as a going concern, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable
future. The Company has not generated positive cash flow from operations since
inception and has incurred operating losses and will need additional working
capital for completion of its planned 2008 and future programs. These conditions
raise substantial doubt about the Company’s ability to continue as a going
concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
management of the Company has developed a strategy to address this uncertainty,
including additional equity and/or debt financing; however, there are no
assurances that any such financing can be obtained on favorable terms, if at
all. These consolidated financial statements do not reflect the adjustments or
reclassification of assets and liabilities that would be necessary if the
Company were unable to continue its operations.
  7
  2.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
 
 Basis of
Presentation
 
 These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Kodiak Petroleum ULC, Kodiak Petroleum (Montana),
Inc., and Kodiak Petroleum (Utah), Inc. In British Columbia, Canada, the Company
operates under the assumed name of Kodiak Bear Energy, Inc. All intercompany
accounts and transactions have been eliminated.
 
 Use of Estimates in the
Preparation of Financial Statements
 
 The
preparation of financial statements in conformity with U. S. GAAP requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although these
estimates are based on the knowledge of current events and actions the Company
may undertake in the future, they may ultimately differ from actual results.
Included in these estimates are assumptions about allowances for valuation of
deferred tax assets. Accounts receivable are stated after evaluation as to their
collectability and an appropriate allowance for doubtful accounts is provided
where considered necessary. The provision for asset retirement obligation,
depletion, as well as management’s impairment assessment on its oil and gas
properties and other long lived assets are based on estimates and by their
nature, these estimates are subject to measurement uncertainty and the effect on
the consolidated financial statements of changes in these estimates, in future
periods, could be significant. These estimates and assumptions are reviewed
periodically and, as adjustments become necessary, they are reported in earnings
in the periods in which they become known.
 
 Joint Venture
Operations
 
 In
instances where the Company’s oil and gas activities are conducted jointly with
others, the Company’s accounts reflect only its proportionate interest in such
activities.
 
 Cash and Short-term
Deposits
 
 Cash
consists of balances with financial institutions and investments in money market
instruments, which have terms to maturity of three months or less at time of
purchase.
 
 Oil and Gas
Properties
 
 Under the
full cost method of accounting for oil and gas operations, all costs associated
with the exploration for and development of oil and gas reserves are capitalized
on a country-by-country basis. Such costs include land acquisition costs,
geological and geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive wells,
production equipment and overhead charges directly related to acquisition,
exploration and development activities. Proceeds from the sale of oil and gas
properties are applied against capitalized costs with no gain or loss
recognized, unless such a sale would significantly alter the rate of depletion
and depreciation in a particular country, in which case a gain or loss on
disposal is recorded.
 
 Capitalized
costs within each country are depleted and depreciated on the unit-of-production
method based on the estimated gross proved reserves as determined by independent
petroleum engineers. Oil and gas reserves and production are converted into
equivalent units on the basis of 6,000 cubic feet of natural gas to one barrel
of oil. Depletion and depreciation is calculated using the capitalized costs,
including estimated asset retirement costs, plus the estimated future costs to
be incurred in developing proved reserves, net of estimated salvage
value.
  An
impairment loss is recognized in net earnings if the carrying amount of a cost
center exceeds the “cost center ceiling”. The carrying amount of the cost center
includes the capitalized costs of proved oil and natural gas properties, net of
accumulated depletion and deferred income taxes and the cost center ceiling is
the present value of the estimated future net cash flows from proved oil and
natural gas reserves discounted at ten percent (net of related tax effects) plus
the lower of cost or fair value of unproved properties included in the costs
being amortized (and/or the costs of unproved properties that have been subject
to a separate impairment test and contain no probable reserves).
  8
  Costs of
acquiring and evaluating unproved properties and major development projects are
initially excluded from the depletion and depreciation calculation until it is
determined whether or not proved reserves can be assigned to such properties.
Costs of unproved properties and major development projects are transferred to
depletable costs based on the percentage of reserves assigned to each project
over the expected total reserves when the project was initiated. These costs are
assessed periodically to ascertain whether impairment has occurred.
 
 Property and
Equipment
 
 Property
and equipment is recorded at cost. Depreciation of assets is provided by use of
a declining balance method over the estimated useful lives of the related
assets. Expenditures for replacements, renewals, and betterments are
capitalized. Maintenance and repairs are charged to operations as
incurred.
 
 Asset Retirement
Obligations
 
 The
Company recognizes a liability for asset retirement obligations in the period in
which they are incurred and in which a reasonable estimate of such costs can be
made. Asset retirement obligations include those legal obligations where the
Company will be required to retire tangible long-lived assets such as producing
well sites. The asset retirement obligation is measured at fair value and
recorded as a liability and capitalized as part of the cost of the related
long-lived asset as an asset retirement cost. The asset retirement obligation
accretes until the time the asset retirement obligation is expected to settle
while the asset retirement costs included in oil and gas properties are
amortized using the unit-of-production method.
 
 Amortization
of asset retirement costs and accretion of the asset retirement obligation are
included in depletion, depreciation and accretion. Actual asset retirement costs
are recorded against the obligation when incurred. Any difference between the
recorded asset retirement obligations and the actual retirement costs incurred
is recorded in depletion, depreciation and accretion.
 
 Environmental
 
 Oil and
gas activities are subject to extensive federal, provincial, state and local
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites.
 
 Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefits are expensed. Liabilities
for expenditures of a non-capital nature are recorded when environmental
assessment and/or remediation is probable, and the costs can be reasonably
estimated. To date, the Company has not recognized any environmental obligations
as production has been insignificant and we have not actively produced since
October, 2006.
 
 Income
Taxes
 
 Income
taxes are determined using the liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date. In addition, a valuation allowance is established to reduce any deferred
tax asset for which it is determined that it is more likely than not that some
portion of the deferred tax asset will not be realized.
  9
  Per FASB
Interpretation (FIN 48) (See Note 3) under the liability method, it is the
Company’s policy to provide for uncertain tax positions and the related interest
and penalties based upon management’s assessment of whether a tax benefit is
more likely than not to be sustained upon examination by tax authorities. At
March 31, 2008, the Company believes it has appropriately accounted for any
unrecognized tax benefits. To the extent the Company prevails in matters for
which a liability for an unrecognized benefit is established or is required to
pay amounts in excess of the liability, the Company’s effective tax rate in a
given financial statement period may be affected. Interest and penalties
associated with the Company’s tax positions are recorded as Interest
Expense.
 
 Stock-Based
Compensation
 
 The
Company records compensation expense in the Consolidated Financial Statements
for share based payments using the fair value method pursuant to Financial
Accounting Standards Board Statement (“FASB”) No. 123R. The fair value of
share-based compensation to employees will be determined using an option pricing
model at the time of grant. Fair value for common shares issued for goods or
services rendered by non-employees are measured based on the fair value of the
goods or services received. Stock-based compensation expense is included in
general and administrative expense with a corresponding increase to Additional
Paid in Capital. Upon the exercise of the stock options, consideration paid
together with the previously recognized Additional Paid in Capital is recorded
as an increase in share capital.
 
 Foreign Currency
Translation
 
 The
functional currency for the Company’s foreign operations is the Canadian dollar.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date, while income, expenses and cash flows are translated at
the average exchange rates for the period. The resulting translation adjustments
are recorded as a component of other comprehensive loss. Gains or losses
resulting from foreign currency transactions are included in other
income/expenses.
 
 Revenue
Recognition
 
 Revenues
from the sale of petroleum and natural gas are recorded when title passes from
the Company to its petroleum and/or natural gas purchaser and collectability is
reasonably assured. The Company will begin recording revenue once it is
determined there are proved reserves.
 
 Loss Per Common
Share
 
 Basic
earnings/loss per common share is computed by dividing net earnings/loss by the
weighted average number of common shares outstanding for the period. Diluted
earnings/loss per common share is computed after giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental shares issuable upon exercise of
stock options and warrants, contingent stock, conversion of debentures and
preferred stock outstanding. The dilutive effect of potential common shares is
not considered in the loss per share calculations for these periods if the
impact would have been anti-dilutive.
 
 3.RECENT ACCOUNTING
PRONOUNCEMENTS
 
 FASB
Interpretation (FIN) 48, “Accounting for Uncertainty in Income taxes – an
interpretation of FASB Statement No. 109 (FIN 48). In July 2006, the FASB issued
FIN 48, which provides guidance on accounting for income tax positions about
which the Company has concluded there is a level of uncertainty with respect to
the recognition of a tax benefit in the Company’s financial statements. FIN 48
describes the minimum recognition threshold a tax position is required to meet.
Tax positions are defined very broadly and include not only tax deductions and
credits but also decisions not to file in a particular jurisdiction, as well as
the taxability of certain transactions.
  10
  Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. There was not a material impact on the
Company’s consolidated financial position and results of operations as a result
of the adoption of the provisions of FIN 48. At March 31, 2008, the Company had
no significant unrecognized tax positions and the Company does not believe there
will be any material changes in its unrecognized tax positions over the next
twelve months.
 
 The
Company’s tax positions are subject to examination by tax authorities. As at
March 31, 2008, the Company’s tax years 2005 to present are open for United
States – Federal and State jurisdictions and Canada – Federal and Provincial
jurisdictions.
 
 The
following new accounting standards have been issued, but have not yet been
adopted by the Company:
 
 In
November, 2007, FASB issued SFAS No. 141(R), Business Combination. FAS 141(R)
will change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent periods. FAS
141(R) is effective for both public and private companies for fiscal years
beginning on or after December 15, 2008. FAS 141(R) will be applied
prospectively. Early adoption is prohibited. The Company has not yet determined
this pronouncement’s potential impact.
 
 Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”
(SFAS No. 157). In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS No 157 does not require
any new fair value measurements. However, in some cases, the application of SFAS
No. 157 may change the Company’s current practice for measuring and disclosing
fair values under other accounting pronouncements that require or permit fair
value measurements. Under SFAS No. 157, fair value refers to the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the principal or most advantageous
market. The standard clarifies that fair value should be based on the
assumptions market participants would use when pricing the asset or liability.
In February, the FASB issued Staff Position No. 157-2, “Effective Date of FASB
Statement No. 157” (“FSP FAS 157-2”), which delays the effective date of SFAS
No. 157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value in the Financial statements on a recurring
basis until fiscal years beginning after November 15, 2008. The Company adopted
the provisions of SFAS No. 157 for assets and liabilities recognized at fair
value on a recurring basis effective January 1, 2008. The partial adoption of
SFAS No. 157 did not have a material impact on the Company’s Financial
Statements. We do not currently anticipate that full adoption in 2009 will
materially impact the Company’s results of operations or financial
condition.
 
 SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS No. 159). In February 2007, the FSAB issued SFAS No. 159, which permits
entities to choose to measure many new financial instruments and certain other
items at fair value. The Company adopted SFAS 159 effective January 1, 2008, and
did not elect the fair value option for any existing eligible
items.
 
 4.ACCOUNTS
RECEIVABLE
 
 Accounts
receivable consist of the following:


March
      31, 2008
            
            
            December 31, 2007Non-operating Partner joint venture accounts
            
            $
            122,807
            
            
            $
            454,179Operator cash call advances
            
            
            -
            
            
            
            76,388Government of Canada Goods and Services Tax Claims
            
            
            232,690
            
            
            
            621,254Accrued
      interest receivable
            
            
            17,352
            
            
            
            57,096Other
            
            
            7,330
            
            
            
            5,336$
            380,179
            
            
            $
            1,214,253




11





5.OTHER ASSETS





Other
assets represent long term deposits required by regulatory authorities for
environmental obligations relating to well abandonment and site restoration
activities.


March
      31, 2008
              
              
              December 31, 2007Alberta
      Energy and Utility Board Drilling Deposit
              
              $
              85,370
              
              
              $
              87,518Alberta
      Energy Royalty Deposit
              
              
              -
              
              
              
              4,723British
      Columbia Oil and Gas Commission Deposit
              
              
              257,952
              
              
              
              267,112$
              343,322
              
              
              $
              359,353
  6.CAPITAL
ASSETS
  Cost
              
              
              Accumulated Depreciation and Depletion
              
              
              Net
      Book Value March 31, 2008Oil and
      Gas Properties:Canada
              
              $
              24,596,134
              
              
              $
              1,651,037
              
              
              $
              22,945,097United
      States
              
              
              8,810,212
              
              
              
              -
              
              
              
              8,810,212Sub-total
              
              
              33,406,346
              
              
              
              1,651,037
              
              
              
              31,755,309Furniture and Fixtures
              
              
              133,957
              
              
              
              59,686
              
              
              
              74,271Total
              
              $
              33,540,303
              
              
              $
              1,710,723
              
              
              $
              31,829,580
 Cost
                
                
                Accumulated Depreciation and Depletion
                
                
                Net
      Book Value March 31, 2008Oil and
      Gas Properties:Canada
                
                $
                18,595,042
                
                
                $
                1,651,037
                
                
                $
                16,944,005United
      States
                
                
                7,023,346
                
                
                
                -
                
                
                
                7,023,346Sub-total
                
                
                25,618,388
                
                
                
                1,651,037
                
                
                
                23,967,351Furniture and Fixtures
                
                
                128,412
                
                
                
                52,758
                
                
                
                75,654Total
                
                $
                25,746,800
                
                
                $
                1,703,795
                
                
                $
                24,043,005
  During
the three months ended March 31, 2008, the Company has capitalized $107,783
(December 31, 2007 - $ 193,173) of general and administrative personnel costs
attributable to acquisition, exploration and development
activities.





Unproved
Properties





Included
in oil and gas properties are the following costs related to Canadian and United
States unproved properties, valued at cost, that have been excluded from costs
subject to depletion.




12




March
      31, 2008
              
              
              December 31, 2007CanadaLand
      acquisition and retention
              
              $
              9,784,542
              
              
              $
              9,284,017Geological and geophysical costs
              
              
              10,222,417
              
              
              
              6,371,954Exploratory drilling
              
              
              2,744,495
              
              
              
              1,114,763Tangible equipment and facilities
              
              
              53,679
              
              
              
              127,217Other
              
              
              139,964
              
              
              
              46,054$
              22,945,097
              
              
              $
              16,944,005United
      StatesLand
      acquisition and retention
              
              $
              6,448,441
              
              
              $
              6,206,389Geological and geophysical costs
              
              
              498,891
              
              
              
              383,800Exploratory drilling
              
              
              1,759,096
              
              
              
              409,246Tangible equipment and facilities
              
              
              23,975
              
              
              
              -Other
              
              
              79,809
              
              
              
              23,911$
              8,810,212
              
              
              $
              7,023,346$
              31,755,309
              
              
              $
              23,967,351
  Drilling
programs are being planned for 2008-09 for our North West Territories and
British Columbia properties in Canada and an initial seismic and drilling
program has been conducted on our New Mexico property in the United States with
additional drilling to follow in 2008. These planned drilling programs, when
completed, will enable the Company to evaluate the economic viability of these
properties. It is estimated by management that the unproved property costs
associated with these properties, which in the aggregate constitutes
approximately $30,600,000 of our total unproved property costs as at March 31,
2008, will be included in costs subject to depletion during 2008 or
2009.





Ceiling
Test





The
Company has performed ceiling tests for its Canadian and United States
geographical cost centers and has determined that no impairment exists as at
March 31, 2008. As at December 31, 2007 and 2006, the carrying values of the
Company’s unproved properties in its Canadian and United States cost centers
were assessed by management and costs attributable to certain Canadian cost
center properties were determined to be unsupportable. Consequently, ceiling
test impairment write-downs as of December 31, 2007 were $174,380 (2006 -
$1,419,946) were recorded and included in depletion, depreciation and accretion
for those years. No impairment existed in the United States cost center as at
December 31, 2007 or 2006.





7.LONG TERM
LIABILITIES





As at
March 31, 2008, the Company held $ 46,587 (December 31, 2006 - $110,955) in
funds advanced by partners for their share of a drilling deposit required to be
lodged by the Company with the British Columbia Oil and Gas Commission (See Note
5) as security for future well abandonment and site restoration
activities.





8.ASSET RETIREMENT
OBLIGATIONS





Changes
in the carrying amounts of the asset retirement obligations associated with the
Company’s oil and natural gas properties are as follows:





Asset
      Retirement Obligations, December 31, 2007
            
            $
            151,814Obligations
      incurred
            
            
            82,914Accretion
            
            
            4,907Asset
      retirement obligations, March 31, 2008
            
            $
            239,635





At March
31, 2008, the estimated total undiscounted amount required to settle the asset
retirement obligations was $ 384,779 (December 31, 2007 - $213,880. These
obligations will be settled at the end of the useful lives of the underlying
assets, which currently extends up to 8 years into the future. This amount has
been discounted using a credit adjusted risk-free interest rate of 7.5% and a
rate of inflation of 2.5%.





13





9.INCOME TAXES




At March
31, 2008, the Company's deferred tax asset is attributable to its net operating
loss carry forward of approximately $14,522,000 (December 31, 2007 -
$11,191,000), which will expire if not utilized in the years 2024 to 2028. Of
this amount, approximately $406,000 (December 31, 2007 - $402,000) is
attributable to the Company's Canadian operations. As reflected below, this
benefit has been fully offset by a valuation allowance based on management's
determination that it is not more likely than not that some or all of this
benefit will be realized.




For the
periods ended March 31, 2008, March 31, 2007 and for the cumulative period April
7, 2004 (Date of Inception) to March 31, 2008, a reconciliation of income tax
benefit at the U.S. federal statutory rate to income tax benefit at the
Company's effective tax rates is as follows.




2008
            
            
            2007
            
            
            CumulativeIncome
      tax benefit at statutory rate
            
            $
            (162,000
            )
            
            $
            (123,000
            )
            
            $
            (1,624,000
            )Permanent Differences
            
            
            -
            
            
            
            -
            
            
            
            412,000State
      tax benefit, net of federal taxes
            
            
            (12,000
            )
            
            
            -
            
            
            
            (12,000
            )Foreign
      taxes, net of federal benefit
            
            
            
            
            
            
            7,000
            
            
            
            (6,000
            )Change
      in valuation allowance
            
            
            169,000
            
            
            
            116,000
            
            
            
            1,282,000Income
      tax expense (benefit) at effective rate
            
            $
            (5,000
            )
            
            $
            -
            
            
            $
            52,000




Deferred
tax assets (liabilities) at March 31, 2008 and December 31, 2007 are comprised
of the following:




2008
            
            
            2007Deferred tax assetsDeferred costs
            
            $
            -
            
            
            $
            -Deferred deduction on stock-based Compensation
      expense
            
            
            316,000
            
            
            
            249,000Net
      operating loss carryover
            
            
            5,230,000
            
            
            
            4,053,000Total
      deferred tax asset
            
            
            5,546,000
            
            
            
            4,302,000Deferred tax liabilitiesExcess
      of U.S. tax deductions over book amounts written
off
            
            
            3,228,000
            
            
            
            2,154,000Net
      deferred tax asset before valuation allowance
            
            
            2,318,000
            
            
            
            2,148,000Less
      valuation allowance for net deferred tax asset
            
            
            (2,318,000
            )
            
            
            (2,148,000
            )Net
      deferred tax asset
            
            $
            -
            
            
            $
            -Canadian deferred tax liability resulting from flow-through share
      expenditures renounced
            
            $
            52,000
            
            
            $
            57,000




10.SHARE
CAPITAL





Authorized:


March 31,
2008 and December 31, 2007 – 300,000,000 common shares at $0.001 par
value





The
following share capital transactions occurred during the periods:





Issued
            
            Number
            
            
            Par
      Value
            
            
            Additional
      Paid in CapitalBalance
      December 31, 2007
            
            
            106,692,498
            
            
            $
            106,692
            
            
            $
            39,143,392Share
      Issue Costs (a)
            
            
            -
            
            
            
            -
            
            
            
            (9,594
            )Stock-based
      compensation (Note 11)
            
            
            -
            
            
            
            -
            
            
            
            190,136Balance
      March 31, 2008
            
            
            106,692,498
            
            
            $
            106,692
            
            
            $
            39,323,934





(a)
              During
      the three months ended March 31, 2008, the Company paid $9,594 in share
      issue costs which related to common shares issued but under accrued in
      2007.




14


The
following common shares were reserved for issuance:




ExpiryPrice ($)
            
            EquivalentShares Outstanding
            
            
            WeightedAverage Years to Expiry
            
            
            Option
      Shares VestedStock
      Options (see summary below)
            $
      1.28-$ 2.74
            
            
            2,060,000
            
            
            
            3.73
            
            
            
            501,667Warrants (see summary below)
            $
      2.50-$ 3.50
            
            
            4,950,514
            
            
            
            4.50
            
            
            
            -Thunder
      Acquisition (Note 13)
            
            
            
            11,000,000
            
            
            
            1.92
            
            
            
            -Total
      Shares Reserved
            
            
            
            18,085,514
            
            
            
            2.00
            
            
            
            -




Stock Option
Plan





The
Company has a stock option plan under which it may grant options to its
directors, officers, employees and consultants for up to a maximum of 10% of its
issued and outstanding common shares at market price at the date of grant for up
to a maximum term of five years. Options are exercisable equally over the first
three years of the term of the option.





A summary
of options granted under the plan is as follows:






Expiry
      Date
            
            Number
      of Shares
            
            
            Weighted Average Exercise Price
            
            
            Total
      Exercise ValueGranted
      to five directors and one officer
      Oct. 23, 2006
            Oct.
      23/11
            
            
            1,280,000
            
            
            $
            1.50
            
            
            $
            1,920,000Cancellation of an officer’s option
            
            
            
            (280,000
            )
            
            $
            1.50
            
            
            
            (420,000
            )Granted
      to an employee Dec. 1, 2006
            Dec.
      1/11
            
            
            125,000
            
            
            $
            1.28
            
            
            
            160,000Balance
      December 31, 2006
            
            
            
            1,125,000
            
            
            $
            1.48
            
            
            $
            1,660,000Granted
      to an officer Jan. 3, 2007
            Jan.
      3/12
            
            
            280,000
            
            
            $
            1.29
            
            
            
            361,200Granted
      to a consultant Feb. 1, 2007
            Feb.
      1/12
            
            
            100,000
            
            
            $
            1.35
            
            
            
            135,000Granted
      to three senior advisors Apr.
      2, 2007
            Apr.
      12/12
            
            
            300,000
            
            
            $
            1.75
            
            
            
            525,000Granted
      to two consultants Aug. 1, 2007
            Aug.
      1/12
            
            
            130,000
            
            
            $
            2.74
            
            
            
            356,200Granted
      to a consultant Dec. 1, 2007
            Dec.
      1/12
            
            
            100,000
            
            
            $
            2.58
            
            
            
            258,000Balance
      December 31, 2007
            
            
            
            2,035,000
            
            
            $
            1.62
            
            
            $
            3,295,400Granted
      to an employee Mar. 24, 2008
            Mar.
      24/13
            
            
            25,000
            
            
            $
            1.86
            
            
            
            46,500Balance
      March 31, 2008
            
            
            
            2,060,000
            
            
            $
            1.62
            
            
            $
            3,341,900




Warrants





During
2006 and 2007, the Company, as part of certain private placement financings,
issued warrants that are exercisable in common shares of the Company. A summary
of such outstanding warrants follows:




Exercise Price
            
            Expiry
      Date
            
            Equivalent Shares Outstanding
            
            Weighted Average Years to ExpiryIssued
      June 30, 2006
            $2.70-$3.50
            
            June
      30/11
            
            1,130,000
            
            3.25Balance
      December 31, 2006
            
            
            
            
            1,130,000Issued
      February 20, 2007
            $1.50
            
            Feb.
      20/09
            
            860,000
            
            .89Issued
      May 10, 2007
            $1.50
            
            May 10/09
            
            2,447,900
            
            1.11Issued
      September 28, 2007
            $2.50
            
            Mar.
      28/09
            
            220,480
            
            .99Issued
      September 28, 2007
            $3.00
            
            Mar.
      28/09
            
            149,334
            
            .99Issued
      October 3, 2007
            $3.00
            
            Apr.
      3/09
            
            26,800
            
            1.00Issued
      October 30, 2007
            $2.50
            
            Apr.
      30/09
            
            80,000
            
            1.08Issued
      October 30, 2007
            $3.00
            
            Apr.
      30/09
            
            4,000
            
            1.08Issued
      November 1, 2007
            $2.50
            
            May 1/09
            
            32,000
            
            1.08Total
      Issued in 2007
            
            
            
            
            3,820,514
            
            1.05Balance
      December 31, 2007 and March 31, 2008
            
            
            
            
            4,950,514
            
            1.55




15




11.STOCK-BASED
COMPENSATION





In
accordance with Financial Accounting Standards Board Statement (“FASB”) No.
123R, the Company uses the Black-Scholes option pricing method to determine the
fair value of each stock option granted and the amount is recognized as
additional expense in the statement of operations over the vesting period of the
option. The fair value of each option granted has been estimated using the
following average assumptions:




2008
            2007Risk
      free interest rate
            3.00%
            3.99%Expected holding period
            3
      years
            3
      yearsShare
      price volatility
            75%
            75%Estimated annual common share dividend
            -
            -




For
options granted during the three months ended March 31, 2008, the fair value
totaled $23,750 (December 31, 2007 - $1,166,000). The amount of stock-based
compensation expense recorded during the three months ended March 31, 2008 is
estimated to be $190,136 (December 31, 2007 – $643,934) and has been included in
General and Administrative Expense with a corresponding credit to Additional
Paid in Capital. The balance of the fair value of the options to be expensed in
future periods is $1,373,195 (December 31, 2007 - $1,536,937) over a vesting
period of three years.




12.LOSS PER
SHARE





A
reconciliation of the numerator and denominator of basic and diluted loss per
share is provided as follows:




Three
      Months Ended March 31, 2008
            
            
            Three
      Months Ended March 31, 2007Numerator:Numerator for basic and diluted loss per
    shareNet
      Loss
            
            $
            462,157
            
            
            $
            314,042Denominator:Denominator for basic loss per shareWeighted average shares outstanding
            
            
            106,692,498
            
            
            
            90,765,579In the
      money stock options
            
            
            491,067
            
            
            
            146,593In the
      money warrants
            
            
            875,965
            
            
            
            1,134,943Contingent Thunder shares
            
            
            4,500,000
            
            
            
            -Denominator for diluted loss per shareWeighted average shares outstanding
            
            
            112,559,530
            
            
            
            92,047,115Basic
      and diluted loss per share
            
            $
            0.004
            
            
            $
            0.003




Of the
contingent shares related to the property acquisition described in note 13, only
4.5 million shares of the 11 million total contingent shares are assumed to be
issued for purposes of the diluted loss per share calculations. The 6.5 million
shares relating to the significant discovery and production milestones have been
excluded because their inclusion would be anti-dilutive.





13.COMMITMENTS AND
CONTINGENCIES





Thunder Acquisition
Commitments





On
September 28, 2007 the Company purchased from Thunder River Energy, Inc.
(“Thunder”) certain properties in Canada and the United States in consideration
for cash and common shares of the Company. As part of the transaction, the
Company has committed to issue in the future up to 11 million additional common
shares of the Company upon the achievement of certain milestones in connection
with the acquired properties, including 6 million shares to be issued as
follows: 2 million shares upon completion of a 2007/08 seismic program by June
30, 2008; 1 million shares upon the spudding of a shallow depth well (1,500
meters TD) by March 31, 2009; 1.5 million shares upon the spudding of a medium
depth well (2,500 meters TD) before lease expiry in 2009 and 1.5 million shares
upon conversion of any part of EL 413 to a Significant Discovery Lease. If, as a
result of the Company’s exploration and development activities on the acquired
properties, reserves in place exceed 100 million barrels, then, for each excess
10 million barrels in place, 100,000 additional shares could be issued, up to a
maximum of 5 million additional shares.




16


Canadian Flow-through Share
Commitments





In
September and October, 2007, 2,251,670 private placement shares were issued at a
purchase price of $3.00 for gross proceeds of $6,755,010 and on the basis that
the Company would provide the investors a Canadian flow through tax deduction.
In order to provide such flow through share tax deduction benefits to the
investors, the Company has committed to expend the proceeds on eligible capital
expenditures in Canada prior to December 31, 2008 and renounce such expenditures
to the flow through share investors. In 2008, these expenditures were renounced
effective December 31, 2007 and it is estimated by management eligible
expenditures in an amount sufficient to satisfy this commitment will be incurred
before the end of the second quarter of 2008.





Potential
Litigation





As at
December 31, 2007, there was a threatened litigation matter which comprised a
potential claim by a partner against the Company regarding the terms of the EL
413 North West Territory farm-out agreement entered into in 2006. The potential
outcome and loss to the Company is unknown; however, in the opinion of
management, the likelihood of any litigation arising out of this matter has
lessened and it is not expected to result in any material adverse impact on the
Company’s financial position.





14.FINANCIAL
INSTRUMENTS





The
Company, as part of its operations, carries a number of financial instruments.
It is management’s opinion that the Company is not exposed to significant
interest, credit or currency risks arising from these financial instruments
except as otherwise disclosed.





The
Company’s financial instruments, including cash and short term deposits,
accounts receivable, accounts payable and accrued liabilities are carried at
values that approximate their fair values due to their relatively short maturity
periods.





15.RELATED PARTY
TRANSACTIONS





For the
three months ended March 31, 2008, the Company paid $ Nil (March 31, 2007 -
$22,297) to Sicamous Oil & Gas Consultants Ltd., a company owned by the
President and Chief Executive Officer of the Company for consulting services
rendered by him. These amounts were charged to General and Administrative
Expense.





For the
three months ended March 31, 2008, the Company paid $ Nil (March 31, 2007 -
$12,819) to MHC Corp., a company owned by the former Chief Executive Officer of
the Company for consulting services rendered by him. These amounts were charged
to General and Administrative Expense.





For the
three months ended March 31, 2008, the Company paid $30,000 (March 31, 2007 - $
Nil), including $10,000 owing as at March 31, 2008 (December 31, 2007 - $ Nil),
to Harbour Oilfield Consulting Ltd., a company owned by the Vice-President
Operations of the Company for consulting services rendered by him. Of this
amount, $13,704 (March 31, 2007 - $ Nil) was capitalized to Unproved Oil and Gas
Properties and $16,296 (March 31, 2007 - $ Nil) was charged to General and
Administrative Expense.





For the
three months ended March 31, 2008, the Company paid $62,391 (March 31, 2007 -
$28,971), including $30,430 owing as at March 31, 2008 (December 31, 2007 - $
Nil), to the Chief Financial Officer of the Company for services rendered by
him. These amounts were charged to General and Administrative
Expense.





These
related party transactions were in the normal course of business and agreed to
by the related parties and the Company based on negotiations and Board approval
and accordingly had been measured at the exchange amounts.





As at
March 31, 2008 and December 31, 2007, no other amounts were owing to any related
parties.





17





16.SEGMENTED
INFORMATION




The
Company’s geographical segmented information is as follows:
  Three
      Months Ended March 31, 2008U.
      S.
              
              
              Canada
              
              
              TotalRevenue during the Evaluation Period
              
              $
              -
              
              
              
              -
              
              
              
              -Net
      Loss Before Tax
              
              
              14,705
              
              
              
              481,862
              
              
              
              467,157Capital
      Assets
              
              
              8,810,212
              
              
              
              23,019,368
              
              
              
              31,829,580Total
      Assets
              
              
              9,367,187
              
              
              
              27,065,492
              
              
              
              36,432,679Capital
      Expenditures
              
              
              1,730,967
              
              
              
              5,979,619
              
              
              
              7,710,586


Three
      Months Ended March 31, 2007U.
      S.
              
              
              Canada
              
              
              TotalRevenue
      during the Evaluation Period
              
              $
              -
              
              
              
              385
              
              
              
              385Net
      Loss Before Tax
              
              
              (2,629
              )
              
              
              (311,413
              )
              
              
              (314,042
              )Capital
      Assets
              
              
              564,835
              
              
              
              5,202,648
              
              
              
              5,767,483Total
      Assets
              
              
              649,012
              
              
              
              6,225,430
              
              
              
              6,874,442Capital
      Expenditures
              
              
              -
              
              
              
              4,444,276
              
              
              
              4,444,276


17.CHANGES IN NON-CASH
WORKING CAPITAL




Three
      Months Ended Mar. 31, 2008
            
            
            Three
      Months Ended Mar. 31, 2007
            
            
            Cumulative Since Inception April 7, 2004 to Mar. 31,
      2008Operating Activities:Accounts Receivable
            
            $
            648,919
            
            
            
            (4,253
            )
            
            
            (34,767
            )Prepaid
      Expenses and Deposits
            
            
            (10,457
            )
            
            
            (19,767
            )
            
            
            (107,965
            )Accounts Payable
            
            
            21,131
            
            
            
            (15,685
            )
            
            
            146,007Accrued
      Liabilities
            
            
            (56,129
            )
            
            
            (70,483
            )
            
            
            45,866Other
            
            
            -
            
            
            
            -
            
            
            
            25,000Total
            
            $
            603,464
            
            
            
            (110,188
            )
            
            
            74,141





Investing
Activities:




The total
changes in investing activities non-cash working capital accounts, which is
detailed below, pertains to capital asset additions and has been included in
that caption in the Statement of Cash Flow:


Accounts Receivable
              
              $
              185,155
              
              
              
              71,938
              
              
              
              (345,412
              )Prepaid
      Expenses and Deposits
              
              
              18,874
              
              
              
              1,954
              
              
              
              35,907Accounts Payable
              
              
              (19,253
              )
              
              
              908,800
              
              
              
              1,289,677Accrued
      Liabilities
              
              
              2,252,012
              
              
              
              1,806,854
              
              
              
              2,685,300Total
              
              $
              2,436,788
              
              
              
              2,789,546
              
              
              
              3,665,472




Financing
Activities:


The total
changes in financing activities non-cash working capital accounts, which is
detailed below, pertains to shares issued and issuable and has been included in
that caption in the Statement of Cash Flow:




Prepaid
      Expenses and Deposits
                
                $
                -
                
                
                
                -
                
                
                
                (10,000
                )Accounts Payable
                
                
                (113,468
                )
                
                
                (30,072
                )
                
                
                -Accrued
      Liabilities
                
                
                -
                
                
                
                105,000
                
                
                
                (220,000
                )Convertible Debt
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                $
                (113,468
                )
                
                
                74,928
                
                
                
                (210,000
                )
  18




ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





Forward Looking Statements





From time
to time, we or our representatives have made or may make forward-looking
statements, orally or in writing. Such forward-looking statements may be
included in, but not limited to, press releases, oral statements made with the
approval of an authorized executive officer or in various filings made by us
with the Securities and Exchange Commission. Words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project or projected", or similar expressions are intended to identify
"forward-looking statements". Such statements are qualified in their entirety by
reference to and are accompanied by the above discussion of certain important
factors that could cause actual results to differ materially from such
forward-looking statements.





Management
is currently unaware of any trends or conditions other than those previously
mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment. The risks identified here are not all inclusive. New risk
factors emerge from time to time and it is not possible for management to
predict all of such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual
results.





The
financial information set forth in the following discussion should be read in
conjunction with management’s discussion and analysis contained in our 2007
Annual Report on Form 10-K as well as the consolidated financial statements and
notes thereto included elsewhere herein.





Plan of
Operation





The
quarter ended March 31, 2008 has been the most active in the Company’s history,
with substantial development on each of our three major properties. During the
next twelve months, the Company plans to accelerate the aggressive development
of its asset base even further as well as identify additional assets for
addition to our overall land base.





All
projects have been managed on schedule and within budget as the Company proves
to be an effective operator in each jurisdiction in which it operates. In late
2007, a $17.4 million private placement financing was completed under difficult
market conditions and in December, 2007, the Company’s common shares were listed
on the Toronto Venture Exchange in Canada on an aggressive timeline. The Company
expects to finance its future capital expenditure programs with combinations of
debt and equity financings and some divestitures. The Company has no secured
debt at this time. A description of the company’s recent and planned activities
for its core properties is included below.





Kodiak
Energy, Inc. is a petroleum and natural gas exploration and development company
whose primary objective is to identify, acquire and develop working interests in
undeveloped or underdeveloped petroleum and natural gas prospects. We are
focused on prospects located in Canada and the United States. The prospects we
hold are generally under leases and include partial and full working interests.
In all of our core properties, Kodiak is the operator and majority interest
owner. In two properties, we have the option to perform certain exploratory
drilling to earn additional interests. The prospects are subject to varying
royalties due to the state, province or federal governments and, in some
instances, to other royalty owners in the prospect. None of our core properties
are exposed to the recent Alberta Royalty Review changes.




19




The
Company plans to engage in seismic data collection and well drilling programs on
a number of prospects in which it has an interest or right to acquire percentage
interests over the next two years. Drilling programs will be conducted where the
seismic data supports the effort and expense and further drilling will be based
on the results of the initial wells. A number of our prospects are located in
the vicinity of petroleum and natural gas infrastructure, thereby providing the
opportunity to tie-in to existing or planned pipelines. This will be important
in lowering the overall cost of development and marketing any natural resources
located in a prospect.





The
Company currently has no petroleum or natural gas reserves or production. The
company will begin recording revenue when production from proved reserves
commences.





Core
Properties





Canada





Lucy –
Northern British Columbia





The
Company is the operator and the largest working interest owner of a 1,920 acre
lease located in North Eastern British Columbia. The company believes the lease
is located in an extension of the Horn River Basin area which has seen a
dramatic increase in land sale prices resulting from interest from major
companies interested in developing the Muskwa shale gas formation. Other
industry participants continue to acquire large land positions in this part of
British Columbia which are prospective for this type of play.




The
Company originally participated with a non-operated 10% working interest in a
vertical Keg River test well drilled at d-90-A/94-P-4. This well had
intermediate casing set below the Fort Simpson shale and encountered the Muskwa
shale gas formation during the drilling operation. The operator plugged the well
back to the shoe of the intermediate casing point.




Kodiak
purchased and analyzed additional seismic trade data and initiated an
independent operations drilling program which increased the Company’s working
interest to 80% and resulted in drilling the a-79-A/94-P-4 well. After
penetrating and testing the Keg River zone, which proved uneconomic, the
previously known uphole Muskwa and Evie shale gas zones (from the first well
drilled) were further mapped and logged. The a-79-A well encountered
approximately 60m of the Muskwa shale gas formation which had elevated gas
readings and the well was cased to allow for further testing and evaluation. The
Company has filed an application for an experimental continuation of the lease
which will maintain licensee extensions and project
confidentiality.




Pending
the successful approval of the continuation application the Company will execute
a multi-phase work program designed to test the deliverability of the Muskwa
shale gas formation using vertical and horizontal drilling and completion
techniques. The a-79-A well will be perforated and stimulated to determine the
deliverability potential of a vertical Muskwa well. A proposed horizontal leg
will be drilled and completed to determine the deliverability potential of a
horizontal Muskwa well. The close proximity to accessible pipelines will result
in the ability to gain valuable long term production information.




The
Company expects that this play will provide short term results with the
previously described stimulation planned for the winter of 2008, and based on
results will be tied in and monitored with a long term inline production test.
This production test will provide initial cash flow from the Lucy project. The
completion operations will be followed up with additional development horizontal
drilling, completions and testing during the winters of 2009/2010.  An
updated independent prospective resource engineering report is currently being
prepared and it is expected that after the planned stimulation and production
test, reserves will be attributable to this property typical of other Muskwa
shales in the Horn River Basin.




20


Little
Chicago – Northwest Territories




The
Company is the operator and largest working interest owner of the 201,160
acre Exploration Licence 413 (“EL 413”)in the Mackenzie River Valley centered
along the planned Mackenzie Valley Pipeline. In 2006, the Company signed an
exploration farm-in agreement with the two 50% working interest owners of EL
413. The company reprocessed 50 km of existing seismic data in Q4 of 2006
and during the 2006-07 winter work season, the Company expended approximately
$6,500,000 to shoot and acquire 84 km of high resolution 2D seismic data on the
farm-out Lands, thus earning a 12.5% working interest in the property. In
September, 2007, the Company acquired Thunder River Energy, Inc.’s (“Thunder”)
remaining 43.75% in the property giving the Company a 56.25% interest in EL 413.
A 2007-08 43 km 2D high resolution seismic program has been completed on the
property and results are being processed and interpreted. This project was
completed on budget and schedule for a total cost of $4.5 million. The
initial seismic results show substantial structural closure and support the
planning for a 2008-09 multiple well drilling program. An updated independent
prospective resource engineering report is currently being prepared and will
reflect the increased company project ownership, the additional information from
the latest seismic program, the proposed work program and other geological
information.




The
Company is currently negotiating revisions to the farmin agreement which should
result in substantially better terms and conditions going into the drilling
program – this should be completed shortly. The drilling program will be
designed to evaluate multiple potentially productive formations and geological
plays. The application process, which may take up to five months, will begin in
June and will result in the issuance of the required drilling permits. The field
operations will be scheduled to begin in December, 2008.




The
Company has demonstrated that it is a very effective operator in this
challenging environment – with on budget, on schedule projects over the last two
winters, excellent relationships with all stakeholders from the Beneficiaries of
the Land Claims, to all the regulatory bodies and project contractors in the
area.  Company management feels a drilling program is technically feasible
to implement for the winter of 2008/2009.




United
States




New
Mexico




Through
its acquisition of Thunder, the Company acquired a 100% interest in 55,000 acres
of property located in northeast New Mexico. Additional land acquisitions have
increased the Company’s land position to 58,000 acres and offers tendered to
private holders of additional rights, if successful, will further increase our
land position by approximately 50%. These lands have potential for natural gas
and CO2 and oil and helium resources at shallow depths.




The
Company recently completed a 35 mile 2D high resolution seismic program and a 3
well drilling program. The results of these programs are being evaluated and an
engineering report has been commissioned to evaluate the prospective
resource.  The initial well tests show 3 potential zones capable of CO2
production, as well as Helium concentrations in the gas
tests.





In
addition a project feasibility study has been commissioned to identify capital
development costs and timelines as well as projected operating costs in order to
provide information to support a long term plan of development.  These
tools will provide the information for negotiating pipeline access,
transportation agreements, sales contracts for the CO2, additional land
acquisition terms and conditions, facility engineering and construction and
ultimately the parameters for financing the project
development.




Following
the evaluation of the initial seismic and drilling results, an additional
evaluation drilling and seismic program will be planned and executed in Q3/Q4,
2008 with the potential for a major development project planned for 2009. In
addition to mapping the CO2 prospects on the Company’s land, the seismic
programs will also provide information for locating potential oil and gas
prospects on the property.




The
Company’s New Mexico land position has sufficient momentum and size to place the
Company as one of the larger mineral rights holders in Northeast New Mexico,
with potential multiple revenue streams from CO2, Helium, Oil and Natural Gas.
Several companies have expressed interest in participating in the New Mexico
properties at several levels of involvement.




21




Montana




During
2006, the Company, under a joint venture farmout agreement, participated in a
seismic acquisition program and a 2 well drilling program to earn a 50%
non-operating working interest in the wells and well spacing. This joint venture
project provides the company with the right to participate on a 50% basis going
forward on this prospect in the Hill County area of Montana. The Operator of the
project has 60,000 contiguous undeveloped acres of P&NG rights in the area,
as well as some excess capacity in facilities and pipelines. Two wells were
drilled in the third quarter of 2006; one is cased for subsequent evaluation of
the multiple zones found and one was abandoned. In order to facilitate the
efficient exploration of this prospect area, the company has acquired from the
original operator a 100% working interest of 12,000 acres of P&NG rights
while retaining the right to participate and initiate operations on the
remaining prospect leases. The Montana prospect is currently being reviewed by
the company’s staff geologist and an exploration program consisting of seismic
and drilling will be proposed for Q4 2008/Q1 2009.





Financial
Condition and Changes in Financial Condition


(All
dollar values are expressed in United States dollars unless otherwise
stated)





As a
result of the brokered private placement financings and the property
acquisitions completed in late 2007, the Company’s balance sheet was
significantly strengthened and it was able to conduct an aggressive capital
expenditure program in early 2008.





The
Company’s total assets have increased to $36,432,679 as at March 31, 2008 from
$34,690,768 at the end of 2007 and $2,707,075 at the end of 2006. These
increases resulted from the increased capital expenditure programs undertaken by
the Company in the first quarter of 2008 and 2007, as well as the acquisition
described under “Property Acquisition” and the financings described under
“Liquidity and Capital Resources”. Total assets consist of cash and other
current assets of $4,259,777 (December 31, 2007 - $10,288,410); unproved oil and
gas properties and equipment of $31,829,580 (December 31, 2007 - $24,043,005);
and other assets of $343,322 (December 31, 2007 - $359,353). Our total current
liabilities were $4,386,848 (December 31, 2007 - $2,302,555) and consisted of
accounts payable and accrued liabilities relating to capital activities and
general and administrative costs incurred. We had long term liabilities of
$46,587 (December 31, 2007 - $110,955), asset retirement obligations of $239,635
(December 31, 2007 - $151,814), and deferred income taxes of $52,000 (December
31, 2007 - $57,000). Shareholders’ equity amounted to $31,702,609 (December 31,
2007 - $32,068,444), net of an accumulated deficit of $7,301,596 (December 31,
2007 - $6,839,439).





Overall
Operating Results





In the
three months ended March 31, 2008, the Company had income during the evaluation
period of $ Nil (2007 - $385) and operating costs of $274 (2007 - $10,636)
relating to production from its Granlea, Alberta project. The well watered out
in late 2006 and was deemed uneconomic. Except for that small amount of
production, the Company remains in the exploratory and development
stage.





Net Loss
for the three months ended March 31, 2008 totalled $462,157 (2007 - $314,042) In
addition to the operating results noted above, these losses consist of general
and administrative expenses of $512,165 (2007 - $294,502), including stock-based
compensation expense amounting to $190,136 (2007 - $123,814); and depletion,
depreciation and accretion of $ 11,704 (2007 - $9,521) and deferred income tax
recovery of $5,000 (2007 $ Nil).





General
and administrative expenses include the cost of employed and consulting
personnel and others who provided investor relations services, public company
costs for SEC reporting compliance, accounting, audit and legal fees and other
general and administrative office expenses. General and administrative expense
also includes stock-based compensation relating to the cost of stock options
granted to directors, officers, employees and other personnel. General and
administrative costs have been increasing as the scope of the company’s
activities have increased and we believe substantial amounts will continue to be
spent on such costs in the near term as we progress with
the  evaluation of our oil and gas prospects. A tenfold increase in
our shareholder base from 1,000 to approximately 10,000 shareholders during the
past year has also contributed to our increased general and administrative
costs.




22




Depletion,
depreciation and accretion includes the cost of depreciation relating
to office furniture and equipment in 2008, 2007 and 2006. All of the
remaining capitalized costs relate to Canadian and United States unproven
properties and have been excluded from the depletable cost pools for ceiling
test purposes.





Deferred
income tax expense includes a provision for recovery of future Canadian income
taxes of $5,000.





Capital
Expenditures:





Capital
Expenditures incurred by the Company during the three months ended March 31,
2008 and 2007 are set out below.




2008
            
            
            2007Land
      acquisition and carrying costs
            
            $
            605,931
            
            
            $
            27,946Geological and geophysical
            
            
            4,112,993
            
            
            
            4,349,477Intangible drilling and completion
            
            
            2,934,748
            
            
            
            31,933Tangible completion and facilities
            
            
            56,914
            
            
            
            34,920Total
      Capital Costs Incurred
            
            $
            7,710,586
            
            
            $
            4,444,276




Geological
and geophysical costs include the costs of the seismic programs carried out on
the EL 413 Little Chicago, North West Territory project in 2008 and 2007 and the
New Mexico seismic program for 2008.





Intangible
drilling and completion costs for 2008 include the Company’s 57% share of the
drilling of the recent Lucy well in British Columbia and 100% of the three well
New Mexico program.





Liquidity
and Capital Resources:





Since
inception to March 31, 2008, the company’s operations have been financed from
the sale of securities and loans from shareholders. Working capital at March 31,
2008 amounted to $127,071 Deficiency (December 31, 2007 -
$7,985,855).





During
2007, the Corporation raised $33,303,427 (2006 - $4,467,688), net of share issue
costs, in private placement financing proceeds. These financings have enabled
the Corporation to finance its on-going capital expenditures and general and
administrative expenses. The Corporation currently has no long term debt
obligations.





The
Company is seeking and is confident it will obtain additional financing, either
through debt, equity or a combination thereof to cover the estimated cost of its
planned programs for the balance of 2008 and into 2009. In addition, we may
require funds for additional acquisitions. In the event that additional capital
is raised at some time in the future, existing shareholders will experience
dilution of their interest in the Corporation.





There is
uncertainty that the Company will continue as a going concern, which presumes
the realization of assets and discharge of liabilities in the normal course of
business for the foreseeable future. The Company has not generated positive cash
flow from operations since inception and has incurred operating losses and
will need additional working capital for its future planned activities. These
conditions raise doubt about the Company’s ability to continue as a going
concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
Company’s strategy to address this uncertainty, includes additional equity and
debt financing; however, there are no assurances that any such financings can be
obtained on favorable terms, if at all. These consolidated financial statements
do not reflect the adjustments or reclassification of assets and liabilities
that would be necessary if the Company were unable to continue its
operations.





23





ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





The
Company is exposed to market risk from changes in petroleum and natural gas and
related hydrocarbon prices, foreign currency exchange rates and interest
rates.





Petroleum
and Natural gas and Related Hydrocarbon Prices





The
Company currently has no petroleum and natural gas and related hydrocarbon
reserves or production so the Company therefore has no current exposure related
to the instability of prices of such commodities. However; the prices of these
commodities are unstable and are subject to fluctuation, due to factors outside
of the Company’s control, including war, weather, the availability of alternate
fuel and transportation interruption and any material decline in these commodity
prices could have an adverse impact on the economic viability of the Company’s
exploration projects.





Foreign
Currency Exchange Rates





The
Company, operating in both the United States and Canada, faces exposure to
adverse movements in foreign currency exchange rates. These exposures may change
over time as business practices evolve and could materially impact the Company’s
financial results in the future. To the extent revenues and expenditures
denominated in other currencies vary from their U. S. dollar equivalents, the
Company is exposed to exchange rate risk. The Company can also be exposed to the
extent revenues in one currency do not equal expenditures in the same currency.
The Company is not currently using exchange rate derivatives to manage exchange
rate risks.





Interest
Rates





The
Company’s interest income and interest expense, in part, is sensitive to the
general level of interest rates in North America. The Company is not currently
using interest rate derivatives to manage interest rate risks.





ITEM 4.
CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report.
They concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were adequate and effective in ensuring that
material information relating to the Company would be made known to them by
others within those entities, particularly during the period in which this
report was being prepared. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and in
reaching a reasonable level of assurance, management necessarily is required to
apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.





Segregation
of Duties and Access to Critical Accounting Systems





As at
December 31, 2007, we had a material weakness related to certain employees who
had incompatible responsibilities within all significant processes affecting
financial reporting.  We also had a material weakness resulting from
our failure to implement controls to restrict access to financially significant
systems or to monitor access to those systems, which resulted in conflicting
access and/or inappropriate segregation of duties.  These material
weaknesses affect all significant accounts.





Our
management has discussed the material weaknesses described above and other
deficiencies with our Audit Committee.  In an effort to remediate the
identified material weaknesses, we have initiated plans to undertake the
following remediation activities:





We plan
to establish segregation of duties matrices and review the job responsibilities
of our personnel to evaluate how to create appropriate segregation of duties, to
the extent economically feasible given the size and complexity of our
operation.  To the extent possible we plan to limit user access to
segregate duties within our IT systems.  Where that is not possible,
we plan to implement controls to verify that incompatible functions performed by
the same individual are appropriately monitored.





In
addition, we plan to add a process for the IT department to monitor access
rights according to the segregation of duties matrices and provide periodic
exception reports for management.




24




We have
documented this assessment and made this assessment available to our independent
registered Chartered Accountants. We recognize that all internal control
systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.





CHANGES
IN INTERNAL CONTROLS





There
have been no changes in our internal control over financial reporting during our
fiscal quarter ended March 31, 2008 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal controls over
financial reporting.







PART II -
OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS





The
Company is not presently a party to any litigation. As at March 31, 2008 and
December 31, 2007, there was a threatened litigation matter against the Company
which comprised a potential claim by a partner regarding the terms of the EL 413
North West Territory 2006 farm-out agreement. The potential outcome and loss to
the Company is unknown; however, in the opinion of management, the potential of
any litigation and loss to the Company has, due to discussions between the
parties, diminished significantly and the matter is not expected to result in
any material adverse impact on the Company’s financial position.








ITEM 1A.
RISK FACTORS





Going Concern
Uncertainty





There is
uncertainty that the Company will continue as a going concern, which presumes
the realization of assets and discharge of liabilities in the normal course of
business for the foreseeable future. The Company has not generated positive cash
flow from operations since inception and has incurred operating losses and
will need additional working capital for its future planned activities. These
conditions raise doubt about the Company’s ability to continue as a going
concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
Company’s strategy to address this uncertainty, includes additional equity and
debt financing; however, there are no assurances that any such financings can be
obtained on favorable terms, if at all. These consolidated financial statements
do not reflect the adjustments or reclassification of assets and liabilities
that would be necessary if the Company were unable to continue its
operations.





The Oil and Gas Industry Is
Highly Competitive





The oil
& gas industry is highly competitive. We compete with oil and natural gas
companies and other individual producers and operators, many of which have
longer operating histories and substantially greater financial and other
resources than we do. We compete with companies in other industries supplying
energy, fuel and other needs to consumers. Many of these companies not only
explore for and produce crude oil and natural gas, but also carry on refining
operations and market petroleum and other products on a worldwide basis. Our
larger competitors, by reason of their size and relative financial strength, can
more easily access capital markets than we can and may enjoy a competitive
advantage in the recruitment of qualified personnel. They may be able to absorb
the burden of any changes in laws and regulation in the jurisdictions in which
we do business and handle longer periods of reduced prices of gas and oil more
easily than we can. Our competitors may be able to pay more for productive oil
and natural gas properties and may be able to define, evaluate, bid for and
purchase a greater number of properties and prospects than we can. Our ability
to acquire additional properties in the future will depend upon our ability to
conduct efficient operations, evaluate and select suitable properties, implement
advanced technologies and consummate transactions in a highly competitive
environment.




25




Government and Environmental
Regulation





Our
business is governed by numerous laws and regulations at various levels of
government. These laws and regulations govern the operation and maintenance of
our facilities, the discharge of materials into the environment and other
environmental protection issues. The laws and regulations may, among other
potential consequences, require that we acquire permits before commencing
drilling, restrict the substances that can be released into the environment with
drilling and production activities, limit or prohibit drilling activities on
protected areas such as wetlands or wilderness areas, require that reclamation
measures be taken to prevent pollution from former operations, require remedial
measures to mitigate pollution from former operations, such as plugging
abandoned wells and remediation of contaminated soil and groundwater, and
require remedial measures to be taken with respect to property designated as a
contaminated site.





Under
these laws and regulations, we could be liable for personal injury, clean-up
costs and other environmental and property damages, as well as administrative,
civil and criminal penalties. We maintain limited insurance coverage for sudden
and accidental environmental damages as well as environmental damage that occurs
over time. However, we do not believe that insurance coverage for the full
potential liability of environmental damages is available at a reasonable cost.
Accordingly, we could be liable, or could be required to cease production on
properties, if environmental damage occurs.





The costs
of complying with environmental laws and regulations in the future may harm our
business. Furthermore, future changes in environmental laws and regulations
could occur that may result in stricter standards and enforcement, larger fines
and liability, and increased capital expenditures and operating costs, any of
which could have a material adverse effect on our financial condition or results
of operations.





The Successful
Implementation Of Our Business Plan Is Subject To Risks Inherent In The Oil
& Gas Business.





Our oil
and gas operations are subject to the economic risks typically associated with
exploration, development and production activities, including the necessity of
significant expenditures to locate and acquire properties and to drill
exploratory wells. In addition, the cost and timing of drilling, completing and
operating wells is often uncertain. In conducting exploration and development
activities, the presence of unanticipated pressure or irregularities in
formations, miscalculations or accidents may cause our exploration, development
and production activities to be unsuccessful. This could result in a total loss
of our investment in a particular property. If exploration efforts are
unsuccessful in establishing proved reserves and exploration activities cease,
the amounts accumulated as unproved costs will be charged against earnings as
impairments.





We Expect Our Operating
Expenses To Increase Substantially In The Future And May Need To Raise
Additional Funds.





We have a
history of net losses and expect that our operating expenses will continue to
increase over the next 12 months as we continue to implement our business plan.
In addition, we may experience a material decrease in liquidity due to
unforeseen expenses or other events and uncertainties. As a result, we may need
to raise additional funds, and such funds may not be available on favorable
terms, if at all. If we cannot raise funds on acceptable terms, we may not be
able to execute on our business plan, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. This may
seriously harm our business, financial condition and results of
operations.





We Are An Exploration Stage
Company Implementing A New Business Plan.





We are an
exploration stage company with only a limited operating history upon which to
base an evaluation of our current business and future prospects, and we have
just begun to implement our business plan. Since our inception, we have suffered
recurring losses from operations and have been dependent on new investment to
sustain our operations. During the three months ended March 31, 2008 and the
years ended December 31, 2007, 2006 and 2005, we reported losses of $467,157,
$2,775,663, 2,867,374 and 1,133,790 respectively. In addition, our consolidated
financial statements for the three months ended March 31, 2008 and the years
ended December 31, 2007, 2006 and 2005 contained a going concern qualification
and we cannot give any assurances that we can achieve profits from
operations.




26




Our Ability To Produce
Sufficient Quantities Of Oil & Gas From Our Properties May Be Adversely
Affected By A Number Of Factors Outside Of Our Control.





The
business of exploring for and producing oil and gas involves a substantial risk
of investment loss. Drilling oil wells involves the risk that the wells may be
unproductive or that, although productive, that the wells may not produce oil or
gas in economic quantities. Other hazards, such as unusual or unexpected
geological formations, pressures, fires, blowouts, loss of circulation of
drilling fluids or other conditions may substantially delay or prevent
completion of any well. Adverse weather conditions can also hinder drilling
operations. A productive well may become uneconomic due to pressure depletion,
water encroachment, mechanical difficulties, etc, which impair or prevent the
production of oil and/or gas from the well.





There can
be no assurance that oil and gas will be produced from the properties in which
we have interests. In addition, the marketability of any oil and gas that we
acquire or discover may be influenced by numerous factors beyond our control.
These factors include the proximity and capacity of oil and gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land
tenure, allowable production and environmental protection. We cannot predict how
these factors may affect our business.





In
addition, the success of our business is dependent upon the efforts of various
third parties that we do not control. We rely upon various companies to assist
us in identifying desirable oil and gas prospects to acquire and to provide us
with technical assistance and services. We also rely upon the services of
geologists, geophysicists, chemists, engineers and other scientists to explore
and analyze oil prospects to determine a method in which the oil prospects may
be developed in a cost-effective manner. In addition, we rely upon the owners
and operators of oil drilling equipment to drill and develop our prospects to
production. Although we have developed relationships with a number of
third-party service providers, we cannot assure that we will be able to continue
to rely on such persons. If any of these relationships with third-party service
providers are terminated or are unavailable on commercially acceptable terms, we
may not be able to execute our business plan.





Market Fluctuations In The
Prices Of OilAndGas Could Adversely Affect
Our Business.





Prices
for oil and natural gas tend to fluctuate significantly in response to factors
beyond our control. These factors include, but are not limited to actions of the
Organization of Petroleum Exporting Countries and its maintenance of production
constraints, the U.S. economic environment, weather conditions, the availability
of alternate fuel sources, transportation interruption, the impact of drilling
levels on crude oil and natural gas supply, and the environmental and access
issues that could limit future drilling activities for the
industry.





Changes
in commodity prices may significantly affect our capital resources, liquidity
and expected operating results. Price changes directly affect revenues and can
indirectly impact expected production by changing the amount of funds available
to reinvest in exploration and development activities. Reductions in oil and gas
prices not only reduce revenues and profits, but could also reduce the
quantities of reserves that are commercially recoverable. Significant declines
in prices could result in charges to earnings due to impairment.





Changes
in commodity prices may also significantly affect our ability to estimate the
value of producing properties for acquisition and divestiture and often cause
disruption in the market for oil producing properties, as buyers and sellers
have difficulty agreeing on the value of the properties. Price volatility also
makes it difficult to budget for and project the return on acquisitions and
development and exploitation of projects. We expect that commodity prices will
continue to fluctuate significantly in the future.





Risks Of Penny Stock
Investing





The
Company's common stock is considered to be a "penny stock" because it meets one
or more of the definitions in the Exchange Act Rule 3a51-1, a Rule made
effective on July 15, 1992. These include but are not limited to the
following:(i) the stock trades at a price less than five dollars ($5.00) per
share; (ii) it is NOT traded on a "recognized" national exchange; (iii) it is
NOT quoted on the NASD's automated quotation system (NASDAQ), or even if so, has
a price less than five dollars ($5.00) per share; OR (iv) is issued by a company
with net tangible assets less than $2,000,000, if in business more than three
years continuously, or $5,000,000, if in business less than a continuous three
years, or with average revenues of less than $6,000,000 for the past three
years. The principal result or effect of being designated a "penny stock" is
that securities broker-dealers cannot recommend the stock but must trade in it
on an unsolicited basis.




27




Risks Related To
Broker-Dealer Requirements Involving Penny Stocks / Risks Affecting Trading And
Liquidity





Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated there under by the Commission require broker-dealers dealing in
penny stocks to provide potential investors with a document disclosing the risks
of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. These rules may have the effect of reducing the level of trading
activity in the secondary market, if and when one develops.





Potential
investors in the Company's common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Moreover, Commission Rule 15g-9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Pursuant to the
Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide
customers with monthly account statements. Compliance with the foregoing
requirements may make it more difficult for investors in the Company's stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.








ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.








ITEM 3.
DEFAULTS UPON SENIOR SECURITIES





None.








Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.








Item 5.
OTHER INFORMATION





None.





28





ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K





EXHIBITS





31.1
- Certification of President and Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002





31.2
- Certification of Chief Financial Officer to Section 302 of
the Sarbane-Oxley Act of
2002





32.1
- Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002






REPORTS
ON FORM 8-K





On
January 16, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On
January 30, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On
February 7, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On
February 7, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On
February 11, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On
February 26, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On March
12, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On March
18, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





On March
25, 2008 we filed an 8K under item 8.01 Other Events and item 9.01
Financial Statements and Exhibits.





29





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.





KODIAK ENERGY, INC.
                (Registrant)Dated: May 12, 2008
              By:
              /s/ William S.
      TigheWilliam S. TigheChief Executive Officer
               30